Selling a Brooklyn Property with Tenants Not Paying Rent

The Basics

What a Sale Does and Does Not Change

Owners sometimes hope a sale will reset a problem tenancy. It will not. In New York, a residential lease binds the new owner, a rent-stabilized tenant keeps every right they had, and a pending case does not disappear because the deed changes hands. The buyer steps into your shoes as landlord.

That is why the market for occupied, non-paying buildings is narrower than the market for vacant or fully paying buildings. Many buyers who need a mortgage cannot get one on a building with large arrears, a lender may require leases and estoppels that a non-paying tenant will not sign, and owner-occupant buyers usually need vacant possession of at least one unit.

What transfers to the buyer

• Every existing lease and month-to-month tenancy
• Rent-stabilized status, legal regulated rents and registration history
• Security deposits, which New York law requires the seller to transfer to the buyer with notice to tenants
• Open HPD and DOB violations on the building
• Pending Housing Court cases, if the contract assigns them

What does not automatically transfer is the right to back rent that accrued before closing. That is a contract point, and it is one of the biggest levers in your negotiation.

Nonpayment Cases

How a Nonpayment Case Works in Brooklyn

Residential cases in Brooklyn are heard in the Housing Part of the Civil Court, Kings County, at 141 Livingston Street in Downtown Brooklyn. Since the 2019 Housing Stability and Tenant Protection Act, the process has more steps and more protections for tenants than many owners remember.

The basic sequence

• Late notice: if rent is not received within five days of the due date, the landlord must send a written notice by certified mail. Failing to send it can be raised as a defense.
• 14-day rent demand: a written demand listing the months and amounts owed must be served before filing. Three-day and oral demands are no longer allowed.
• Petition and first court date: the case is filed and served, and the first date is typically in a resolution part where many cases settle.
• Judgment and warrant: if the tenant does not pay or settle, the court can enter a judgment and issue a warrant, which must be served with 14 days’ notice.

Why these cases take longer than expected

In a nonpayment case only rent can be sought; late fees and other charges cannot be the basis for eviction. A tenant who pays the full rent owed before trial ends the case, and a tenant who tenders the full amount due before the warrant is executed can generally have the warrant vacated. Courts can also stay an eviction for up to a year for hardship. New York City’s right to counsel program provides free attorneys to many income-eligible tenants, which often means motions, adjournments and negotiated payment plans.

None of this means you cannot win. It means a buyer will price the realistic timeline, not the best case. Settlements with payment schedules are common, and a missed payment usually means returning to court rather than proceeding straight to eviction.

Holdover Cases

Holdovers: When the Issue Is Possession, Not Rent

A holdover asks the court to award possession because the tenant has no right to remain. The grounds available depend almost entirely on the apartment’s status.

Rent-stabilized apartments

Stabilized tenants are entitled to renewal leases, so an expired lease is not a ground. Holdovers are limited to specific reasons in the Rent Stabilization Code, such as nuisance, illegal use, failure to give access or, in narrow circumstances, owner use. After 2019, owner use of a stabilized apartment is limited to one unit and requires an immediate and compelling need. These cases are slow and uncertain. Our guide to selling a rent-stabilized building explains how buyers value them.

Unregulated apartments

For free-market apartments, an owner who does not intend to renew must give advance written notice, with the notice period growing from 30 to 60 to 90 days depending on how long the tenant has lived there. In many New York City buildings, Good Cause Eviction now limits when an owner may refuse to renew at all.

Occupants without a lease

Relatives, former partners, caretakers and others who never had a lease can still be entitled to a predicate notice and a court case. Self-help, such as changing locks or shutting off utilities, is illegal in New York City and can expose an owner to penalties. Inherited homes often involve this kind of occupant.

Good Cause Eviction

Good Cause Eviction and Your Building

New York’s Good Cause Eviction law took effect in New York City on April 20, 2024. For covered apartments it requires a good-cause reason to evict or refuse a renewal, and it treats rent increases above a reasonable level as a defense in a nonpayment case. The reasonable increase is set annually by a formula tied to inflation, published by the state housing agency.

Which apartments are generally covered

The law generally applies to market-rate apartments in buildings built before 2009 when the landlord owns more than 10 units statewide and does not live in a building of 10 or fewer units, and the rent is below a threshold tied to Fair Market Rent. Rent-stabilized apartments, condos and co-op units, and newer or substantially rehabilitated buildings are among the exclusions. Small Brooklyn two-families and three-families owned by an individual landlord are often exempt, but owners must make the required disclosure, including listing other buildings owned, in leases and court papers.

What counts as good cause

• Nonpayment of rent, unless the unpaid amount reflects an unreasonable increase
• Violation of a substantial lease obligation after notice
• Nuisance, illegal use or refusing reasonable access
• Owner or family occupancy, or withdrawing the unit from the market, within limits
• Demolition

A sale is not on that list. A buyer of a covered building inherits the same limits you have, which is why Good Cause status is one of the first things a buyer checks. Ask your attorney to confirm coverage for each unit.

ERAP History

If ERAP or Rental Assistance Is in the Picture

New York’s Emergency Rental Assistance Program paid pandemic-era arrears for many Brooklyn tenants. The state closed the application portal in January 2023, but the program’s terms still affect buildings where landlords accepted payments.

• A landlord who accepted ERAP agreed the payment satisfied the tenant’s rent for the covered period
• For 12 months after payment, participating landlords could not evict for an expired lease or holdover tenancy, and state guidance also barred rent increases for that year
• Arrears outside the covered period, or new arrears after it, can still support a case

The 12-month windows from ERAP payments have largely run, but the payment history matters when a buyer reconstructs what is actually owed. Bring copies of ERAP notices and payment records. Tenants may also have current arrangements with the city’s Human Resources Administration, such as one-shot deals or rental subsidies, and buyers will want to know which income is reliable.

Structuring the Sale

How to Structure a Sale with Tenants in Place

New York residential sales are attorney-driven. After you agree on price, the buyer’s attorney reviews the title and your documents and the contract is signed with a deposit. With non-paying tenants, a few contract terms matter more than usual.

Key contract points

• Arrears: retained by the seller, assigned to the buyer, or split by date
• Pending cases: assigned to the buyer with substitution as petitioner, or discontinued at closing
• Legal fees: who pays the landlord-tenant attorney through closing
• Rent roll representation: an accurate, signed rent roll showing paying and non-paying units
• No vacancy condition: a buyer who does not require vacant possession removes the main source of delay
• Security deposits: transferred at closing with notice to tenants

Selling subject to the tenancy

Selling subject to tenancy means you are not promising anything about who will be in the building. That is the cleanest structure for most owners with non-paying tenants. A buyer who insists on a vacancy or a completed eviction before closing is really asking you to carry the litigation risk, sometimes for many months.

Cash-for-keys agreements, in which an occupant agrees to leave by a certain date in exchange for payment, are legal when voluntary and properly documented. They should be handled by an attorney, and pressuring a tenant to leave can be harassment under city law.

Your Options

Listing vs. Waiting vs. Selling Direct

Finish the case, then list

If the case is close to resolution and you can carry the building, finishing first and then listing with a broker can produce the highest price, especially for a two-family that will appeal to owner-occupants once a unit is vacant. The risk is time: adjournments, hardship stays and payment plans can stretch the timeline well beyond your estimate.

List now with tenants in place

A broker can market an occupied building to investors. Expect showings to be hard to arrange, a smaller buyer pool and financing-dependent offers that may fall apart once the buyer’s lender sees the rent roll.

Sell direct, as-is

A direct buyer such as Red Hook Development makes one offer that already accounts for the tenants, the case and the condition of the building. We do not need to see apartments occupied by non-paying tenants before making an offer, we do not require vacancy, and we close in cash with our attorneys coordinating with yours. For owners who are tired of carrying a building that does not pay, that certainty is often worth more than a theoretical higher price later. See what we buy or tell us about your property.

Preparation

What to Gather Before You Talk to Buyers

You do not need a perfect file to get an offer, but the more a buyer can confirm, the less they have to discount for uncertainty.

• A rent roll showing each unit’s rent, status and balance owed
• Leases and renewals, including any riders
• HCR rent registrations for stabilized units
• Court index numbers, stipulations and your attorney’s status summary
• Copies of rent demands and predicate notices that were served
• ERAP or other rental assistance records
• Recent tax and water bills, and a list of open violations

Open violations often travel with non-paying tenancies, because repair disputes and rent withholding go together. Our guide on selling a building with violations covers how those are handled at closing.

Fine Print

Getting the Right Advice

This guide is general information, not legal or tax advice. Landlord-tenant law in New York City changes often and turns on details: the apartment’s regulatory status, the building’s age and size, what notices were served and when, and what has already happened in court. Before you serve a notice, sign a stipulation or agree to contract terms on arrears, talk to a New York landlord-tenant attorney. For the tax treatment of uncollected rent or a sale, talk to a CPA.

When you want to know what your building is worth with the tenants and the case exactly as they are, we will give you a confidential number with no obligation, and no one will knock on your tenants’ doors.